Cooly explaining inflation

Yellow Pad

 

Being the coordinator of Action for Economic Reforms (AER) or being an advocate, I have to cut a public persona. That means I write columns, I speak in forums, I attend assemblies, I post on social media, I appear on TV for interviews. The last is the least I like doing.

But then again, my colleagues, the young ones especially, are very capable of doing such tasks. And so, more and more, they do part of my tasks or responsibilities. Besides, the young really learn from doing.

On a weekend though, I try to avoid giving them sudden assignments like doing a media interview. So what happens when ABS-CBN calls me, asking for an interview?

I wasn’t mentally prepared for an interview. I just returned from a foreign trip, and my body rhythm was still out of synch.

Apples of ABS-CBN said that the interview was about inflation. And she wanted the interview done at the soonest. Hence, I didn’t have the option of looking for a substitute, given the short notice. Besides, I didn’t want to impose an unexpected task on my colleagues on a weekend.

Truth to tell, though, the topic of inflation agitates me. My lament is that too many “fake news” or mistaken analyses have come out on inflation. I have told myself and the AER colleagues that we must be spirited and assertive in explaining what inflation is all about. We must not allow wrong ideas like the tax reform being the culprit of higher inflation dominate the public discourse.

With such motivation, I agreed to be interviewed.

The setup was a little weird. I wore an imitation of the striped light blue football jersey of Argentina, a pair of thin unwashed jeans from UNIQLO, and a pair of comfy open toed leather slip-ons. (I wish I had the Our Tribe sandals.) That perhaps would have been a proper attire for an interview about Maradona or Messi, which I was somewhat competent to talk about.

The interviewer, Apples, remarked that my outfit was exceptional and cool. Usually, she continued, economists wore formal jackets or blazers with ties for the interview. In response, told her that a Montblanc pen is an economist’s signature, too. (A funny side story that is irresistible to tell: Upon observing in a talk show that I was the only person in a panel of economists armed with Montblancs, my mom gifted me one. Which I still don’t use.)

Perhaps, because of such a strange setup for the interview, I received Viber messages from my circle of fellow travelers after the interview was aired on TV.

Vivian’s message: “Men! Just saw you in the news, abs-cbn.” Followed by Patricia’s: “Pa-autograph, Men!” I still have to respond to Patricia, but now I know how I will reply to her: “Will use the Montblanc for the autograph.”

Raffy, one of the four physicians in the travel group, asked: “What’s the interview about, Men?”

And so I tried to summarize what I said about inflation. Here is the gist of my views on current inflation, which I share not only to my traveling group called “Peregrinos 2018” but to the BusinessWorld readers.

Inflation is ever present in a growing economy.

In fact, we should be more worried about very low or zero inflation. That is bad for the economy, for it means people are not spending and hence investors will not be investing either. The inflation rate of 4.5% in April 2018 is still relatively low, as the literature suggests, even if the inflation target was not met, exceeding the target by 0.5 percentage point.

But remember that the inflation target is for the whole year.

In other words, it is premature to make conclusive statements on whether the country has met its inflation target. Barring unforeseen circumstances in world affairs, we can expect inflation to taper and stabilize. Our independent central bank is confident about this.

The higher inflation rate we are seeing is mainly a result of the increase in global crude oil prices. The Dubai crude oil price has increased to $68.43 per barrel in April 2018, significantly deviating from a price forecast of between $45 and $60. The relative scarcity of some basic food items arising from natural calamities and the peso devaluation (which on the other hand is good for the welfare of the families of overseas Filipinos and for the competitiveness of our exports and import substitutes).

The tax reforms resulting in higher fuel tax and higher prices of cigarettes and sugary drinks of course have contributed to inflation.

But its effect accounts only for 0.4 percentage point of an inflation rate of 4.5%.

Besides, to paraphrase Finance Secretary Dominguez: taxing bad products like cigarettes and sugary drinks is still good for the health and welfare of our people, even if this means a little increase in inflation.

At any rate, to repeat, a 4.5% rate should not be a cause for alarm.

Some measures that mitigate inflation should relentlessly be pursued: The cash transfer to the poorest 50% of Filipino households, targeted public transport subsidy for the poor and working classes, liberalization of rice importation to bring rice prices down (rice has the biggest weight in the inflation basket) and rice from our neighboring countries is cheaper. We must likewise pressure government to use efficiently and effectively the huge revenues generated from tax reform. Good government spending particularly on infrastructure, health, and education will create jobs and income and bring down the cost of doing business.

In the end, what is most important are development outcomes, rather than indicators. Inflation and growth rates are indicators of development outcomes. We are having higher inflation, but it is moderate if not still low. And we are having sustained growth.

But the real good news is that poverty is declining.

The latest survey of the Social Weather Stations shows that self-rated poverty has dropped from 32% in December 2017 to 29% in March 2018.

Similarly, the number of families experiencing involuntary hunger has gone down from 15.9 percent in December 2017 to 9.9 percent in March 2017. All this despite the complaints on higher inflation.

Upon presenting this, Katrina from our travel group said: “In my dreams I can speak and analyze like Men.” Thank you.

My sister Tata has perhaps the last say: “We can all say that Kat, but we stop at ‘It’s about inflation.’ And if we are asked to explain, we show our cheesy smile and confidently say, ‘Bahala na siBatman.’”

Batman can either be Finance Secretary Dominguez or his Undersecretary Karl Chua.

But wait, the task of containing inflation but more importantly securing sustained growth and a prosperous future for all Filipinos involves everyone.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

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